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352 Chapter 11 politics and the economy

rich neighborhood are packed with poor people. The United States is the global eco-
nomic leader, occupying the most luxurious mansion in the best neighborhood and
spearheading the new biotech society.

World economic Systems
11.7 Contrast capitalism and
socialism: their components, Now that we have sketched the major historical changes in world economic systems and
ideologies, criticisms, and their means of exchange, let’s compare capitalism and socialism, the two main economic
convergence.
systems in force today. This will help us to understand where the United States stands in
the world economic order.
Listen on MySocLab Capitalism
Audio: NPR: In Africa, No Coke
Can Mean No Stability What Capitalism Is. People who live in a capitalist society may not understand its
basic tenets, even though they see them reflected in their local shopping malls and fast-
food chains. Table 11.3 distills the many businesses of the United States down to their
basic components. As you can see, capitalism has three essential features: (1) private
ownership of the means of production (individuals own the land, machines, and factories),
(2) market competition (competing with one another, the owners decide what to pro-
duce and set the prices for their products), and (3) the pursuit of profit (the owners try to
sell their products for more than they cost).

Table 11.3 Comparing Capitalism and Socialism

Capitalism Socialism
1. Individuals own the means of production. 1. The public owns the means of production.
2. Based on competition, the owners determine 2. Central committees plan production and set
production and set prices. prices; no competition.
3. The pursuit of profit is the reason for 3. No profit motive in the distribution of goods
distributing goods and services. and services.
Source: By the author.

What State Capitalism Is. No country has pure capitalism. Pure capitalism, known
as laissez-faire capitalism (literally “hands off” capitalism), means that the government
doesn’t interfere in the market. The current form of U.S. capitalism is state (or welfare)
capitalism. Private citizens own the means of production and pursue profits, but they do
so within a vast system of laws designed to protect the welfare of the population, and—
not incidentally—ensure that the government can collect taxes.
Consider this example:

Suppose that you discover what you think is a miracle tonic: It will grow hair, erase
wrinkles, and dissolve excess fat. If your product works, you will become an overnight sensa-
tion—not only a multimillionaire but also the toast of television talk shows and the dar-
ling of Hollywood.
capitalism an economic system But don’t count on your money or fame yet. You still have to reckon with market re-
built around the private owner- straints, the laws and regulations of welfare capitalism that limit your capacity to produce
ship of the means of production, and sell. First, you must comply with local and state laws. You must obtain a business license
the pursuit of profit, and market and a state tax number that allows you to buy your ingredients without paying sales taxes.
competition Then come the federal regulations. You cannot simply take your product to local stores and
laissez-faire capitalism literally ask them to sell it; you first must seek approval from federal agencies that monitor compli-
“hands off” capitalism, meaning ance with the Pure Food and Drug Act. This means that you must prove that your product
that the government doesn’t inter- will not cause harm to the public. Your manufacturing process is also subject to federal,
fere in the market state, and local laws concerning fraud, hygiene, and the disposal of hazardous wastes.